Food firms urged to list on UAE bourse

A study of food companies in the UAE has come up with a suggestion to look for new and cheaper ways of financing in order to cope with local and international competition.

It also suggests an inexpensive way of doing this by urging food companies to list on the UAE stock exchange to raise funds at a competitive cost.

Walaa El Kelish, coordinator of the commercial section at Al Ain Technical School, recently conducted the study under the supervision of the University of Strathclyde, Scotland.

He said the UAE Ministry of Finance and Industry and the British Council in Dubai supported the research to highlight the choice of optimal financial structure and its impact on firm value.

The local food industry consists of 199 factories with a capital investment of around Dh3.06 billion.

El Kelish said changes in debt to equity ratio did not have any impact on the firm's value. Therefore, food firms are freer to choose a suitable financial structure according to a trade-off between risk and return.

The study disclosed that the firms are likely to be driven by some behavioural or managerial factors, and a rank order hierarchy of financing preferences in their choice of financial structure rather than targeting a predetermined optimal debt to equity ratio.

El Kelish also advised food companies to follow a product diversification strategy or merge in order to reduce business risk and avoid increasing debt capacity.

The research encourages food firms to use more financial information in decision making, and to combine it with experience and judgement to adjust their financial structures at the right time and cost.